Perspective C O R P O R A T I O N Expert insights on a timely policy issue Biosimilar Cost Savings in the United States Initial Experience and Future Potential Andrew W. Mulcahy, Jakub P. Hlávka, and Spencer R. Case he Biologics Price Competition and Innovation Act ers, leading to savings in spending on biologics. This Perspective (BPCIA), enacted as part of the 2010 Patient Protection estimates potential future savings from biosimilars in the United and Affordable Care Act (ACA), authorized the U.S. Food States, summarizes the experience to date with the first marketed and Drug Administration (FDA) to create a new regula- biosimilar in the United States, and discusses key policy issues tory approval pathway for biosimilars, which are biologic drugs that surrounding biosimilars. We estimate that biosimilars will lead T to a reduction of $54 billion in direct spending on biologic drugs are very similar to already approved “reference” biologics in terms of potency, safety, and efficacy, but manufactured by different from 2017 to 2026, or about 3 percent of total estimated biologic companies. In the seven years since the ACA, many drug manufac- spending over the same period, with a range of $24 to $150 billion. turers worked to push new biosimilars through development and While our estimate uses recent data and transparent assumptions, FDA review. As of July 2017, there were three marketed biosimilars we caution that actual savings will hinge on industry, regulatory, and two more that were approved by the FDA but not yet mar- prescriber, and insurer decisions, as well as potential future policy keted. BPCIA’s shorter, lower-cost biosimilar approval pathway was changes to strengthen the biosimilar market. designed to introduce competition among biologic manufactur- Background biologics in potency, safety, and efficacy, but with minor differences U.S. spending on prescription drugs increased by 4.8 percent to because they are derived from living organisms. $323 billion from 2015 to 2016.1 The increasing use of specialty In the years following passage of the ACA, the FDA began drugs—including biologics—is one of the main drivers of spending releasing guidance to industry outlining its approach to regulat- growth. Biologics are complex, protein-based drugs manufactured ing biosimilars.6 Many drug manufacturers intensified or initiated in living systems and include insulin; monoclonal antibodies to biosimilar development programs. The first applications under the block inflammation in rheumatoid arthritis; and a range of drugs FDA’s biosimilar pathway were submitted in 2014. In March 2015, to treat cancer, multiple sclerosis, and other serious diseases. Bio- a biosimilar of filgrastim—a drug used to treat low white blood cell logics are a primary treatment option for several cancers and other counts due to chemotherapy, among other causes—was the first to serious conditions. While only 1–2 percent of the U.S. population be approved. As of July 2017, there are three marketed biosimilars is treated with a specialty drug each year—a category that includes (one to filgrastim and two to infliximab), two biosimilars that are biologics and other complex, often expensive drugs,2 biologics alone FDA-approved but not yet marketed (one each to adalimumab and accounted for 38 percent of U.S. prescription drug spending in etanercept),7 and over 60 biosimilar molecules in development for 2015 due to their high cost per dose,3 and for 70 percent of drug more than 20 reference biologics.8 spending growth between 2010 and 2015.4 For over 30 years, the United States has implemented suc- Roadmap cessful policies and regulations to promote competition between In this RAND Perspective, we build on an earlier RAND analy- manufacturers of simpler, “small molecule” drugs after key pat- sis to describe how the developing U.S. biosimilar market could ents expire or are successfully challenged in court. However, the reduce spending on biologics.9 Specifically, we expand our prior lit- provisions of the Hatch-Waxman Act of 1984 that created the U.S. erature review on estimates of the cost savings potential of biosimi- generic drug industry do not apply to biologics, and until recently lars to include studies conducted through March 2017. Drawing on it did not make economic sense in most cases for manufacturers assumptions from the literature review and our subject-matter expe- to bring competing biologics to market, even after the key patents rience, we then estimate the potential cost savings from biosimilars, and FDA-granted exclusivity periods protecting originator biolog- using recent data on all biologic drugs as a baseline. Finally, we ics expired.5 The BPCIA, enacted as part of the ACA, authorized discuss sources of uncertainty and evolving policy issues in the U.S. the FDA to create a regulatory approval pathway for biologics that biosimilar market that could affect the cost savings. would be shorter and less expensive than a full new drug applica- tion. These biosimilar drugs are very similar to approved “reference” The Cost Savings Potential of Biosimilars The rationale for a biosimilar approval pathway is to promote competition among manufacturers to lower prices and potentially 2 increase access to medications. Figure 1 illustrates the relation- Figure 1. Biologic Market Relationships ships between manufacturers, providers, insurers, pharmacy benefit Reference biologic Biosimilar managers (PBMs),10 and patients that drive both competition and manufacturer manufacturers potential savings. Biosimilars and their respective reference biolog- ics are expected to compete on price to gain market share. Both insurers and providers are, in a way, “buyers” of biologics and can steer patients toward one product or another. Providers buy biolog- ics from manufacturers or wholesalers and administer biologics to patients. Insurers influence prescribers by setting their own Price competition payment rates and through utilization management tools, such as prior authorization, that require prescribers to provide justification and documentation to support the insurer paying for a drug at all. Purchase price Rebates Patients are also “buyers” of biologics to the extent that they pay for Payment rates and utilization management part of the cost of drugs through cost-sharing. The manufacturer offering the best price to providers (including hospitals, physician Providers Insurers practices, and pharmacies) and the largest rebates to insurers should expect to gain market share and revenue. Over time, patients could Prescribing decisions benefit from price competition through lower insurance premiums, lower out-of-pocket costs, and increased access to medications. Cost sharing Premiums Price competition will result in savings if utilization remains Patients constant. Lower prices, however, may increase utilization of biolog- ics. For example, some patients who choose not to take biologics due to high out-of-pocket cost might change their minds if biosim- SOURCE: RAND author–generated. ilars offer lower prices. Providers relying on margins that scale with RAND PE264-1 the acquisition price of biologics for revenue (as we describe later tion and on how insurers, providers, and patients respond to lower in this Perspective) may write more prescriptions or increase the prices in terms of volume. volume of other services to compensate for the reduction in price. A previous RAND Perspective described a framework based The net change in spending due to biosimilars may be positive on economic theory to link not only competition from biosimilars, or negative depending both on the magnitude of the price reduc- but also other drivers to changes in spending on biologic drugs.11 3 The other drivers—including the safety, efficacy, and real-world • interchangeability: Biosimilar regulations allow the FDA effectiveness of biosimilars; payment; and the acceptability of to designate some biosimilars as interchangeable with their biosimilars to prescribers and patients—work with and through reference biologic; in other words, pharmacies could dispense competition to determine biosimilars’ market share, prices, and one or the other without needing a prescriber to authorize the impact on spending. While these other drivers are important, we change. None of the biosimilars approved to date have sought identified competition as the most important factor in determining the interchangeable designation, and the FDA only recently impact on spending. released a draft guidance document outlining the requirements for the interchangeable designation.13 Without interchangeabil- An Evolving Market ity, prescribers must choose a specific biosimilar or reference While biosimilar approvals and launches are major milestones, the biologic by name, which limits the potential for biosimilars U.S. biosimilar market is still in its infancy. The ultimate features to gain market share and compete on price. Relatedly, many of the market, such as the number of biosimilar manufacturers; the states have enacted laws to define pharmacists’ ability to sub- intensity of competition; the reception of biosimilars by prescrib- stitute biosimilars for reference biologics.14 State laws differ in ers, payers, and patients; and the potential savings from biosimilars, their specific features, but many include provisions that could will continue to evolve over the next few years. Some of the most affect biosimilar uptake: for example, requiring patients to be important evolving features of the U.S. biosimilar market include